Wednesday, 6 January 2010

Cheque this out...

The new chequebook requirement is not just on the part of HSBC, as my landlord’s man thought happily last night when I passed over my rent in cash to him. He was shocked to hear me tell him that every bank in the UAE is likely to start rejecting ‘old’ cheques and he had no idea at all how to tell the difference between ‘old’ and ‘new’ cheques. He is holding several ‘old’ cheques as PDCs preparatory to depositing them when the rents on other properties come due – I wonder how many other landlords are in a similar position.

In my humble opinion, this whole sorry episode is a case study in totally inadequate communications, a demonstration of breathtaking arrogance from banks and a clear sign that the UAE’s banks have a huge leap forward to make in customer service and communication. I might be overdoing it, but I doubt it: this is what I do for a living – communications. I might be useless at it, I might not. But I have never seen it so badly mismanaged in my life – and I have been working in the Middle East for over twenty years now.

All UAE banks have to upgrade their cheques to conform to new guidelines mandated by the UAE Central Bank and so there is a very real danger that the vast majority of cheques held by people out there are now duds. And that the majority of cheque books out there are useless.The UAE is a society where a cheque was previously regarded as ‘as good as cash’ because of the Central Bank’s ‘two strikes and you’re out’ policy. In the UAE, if you bounce a cheque, the person you have issued the cheque to can call the police and file a case against you and if you bounce a cheque twice, the Central Bank can (and, I hear, will) withdraw your access to banking services.

This has been an amazing deterrent to any form of ‘bad cheque’ and, in fact, there are no cheque guarantee cards here. A cheque is a man’s word and bond and respected as such.

The new guidelines from the Central Bank have been triggered by the introduction of a new automated clearing system, ICCS. This demands banks take extra precautions before scanning cheques and sending them to the Central Bank for clearing, hence the mandated ‘more secure’ cheque books.

HSBC and other banks started to refuse cheques without the new features on the 1st January 2010. I have no record of HSBC contacting me to advise me of this – I did, incidentally, search through the 33 junk and phishing emails that purported to come from HSBC that I have received since November last year, but they are all fakes. HSBC has not responded to my post yesterday asserting that the bank had not effectively communicated the vitally important new changes to me.

There is some confusion regarding PDCs. According to Mashreq’s FAQ:Retail and corporate customers may have already collected cheques which do not comply with cheque security features prior to this deadline. In view of this, collecting banks will accept such deposits and process them as usual in ICCS till 31/07/2010. Any PDCs dated beyond 31/07/2010 must be lodged with Banks before 31/12/2009 for collection on the due date.

But HSBC’s FAQ is a little more clear (my bold):Post dated cheques without the security features, which have been collected by customers prior to 31 December 2009, can be accepted until 31 July 2010. After this date no cheque without the security feature will be accepted.Post dated cheques and discounted cheques deposited in advance without the security feature and already held by banks for any date will not be affected by this rule; however HSBC will not accept any new cheques without the security features post 01 January 2010.

In other words, PDCs will only be honoured if the bank already held them prior to 31/12/2009 – think about it, a cheque dated now and lodged now is just a ‘new cheque without the security features’, no?

I haven’t seen any news stories or advertisements about this massive change to the banking system. If other banks have contacted their customers, well and good – but nobody I have spoken to has been aware of this whole issue at all. I should point out that some people commenting to the last post I put up on this issue do say they were made aware – although some said they received emails as late as 28/12/2009.

By the way – as far as I can see, the ICCS rollout from the Central Bank has been done with remarkable care and some two years of trials, dry runs and suchlike. I remain amazed that two years down the line, banks seem singularly unprepared to meet the challenges of the rollout.

There has been no concerted awareness campaign on the part of the banks to ensure that customers know about this issue. I can gather evidence of, at best, cursory and almost derisory attempts at communicating what’s going on (mounting a FAQ on your website is not communicating with your public). And that strikes me as verging on insane – let alone highly insecure – given that this move potentially invalidates every cheque in the UAE that does not conform to a new standard that most people are unaware of.

So what does this all mean? Try this lot:

PDCs held by landlords in the UAE that have not yet been lodged or discounted with a bank are likely not to be honoured by banks. They are potentially worthless documents as of 1/1/2010.

Anybody issuing a cheque using the old style cheque book is potentially defrauding the person they are presenting the cheque to. And anyone accepting such a cheque (do you know what the new ones look like? HmmMMM?) is likely to have it bounced by the bank.

Any payments, for instance mortgage payments, car loans or PDCs issued by businesses against scheduled payments, may well (probably will) bounce.

Anyone who doesn’t know the difference between the ‘new’ cheques and the ‘old’ cheques issued by every UAE bank is in danger of accepting a dud cheque.

The criminally minded punter can now have a field day – imagine selling someone some ACs, a fridge or suchlike. By the time the cheque has gone ‘thud’, what are the chances you’ll be able to find yer man? Yeah, zero.

Cheques in the UAE are no longer as good as cash. They’re as good as junk until someone gets their finger out and clearly communicates what the hell is going on here. And that means, collectively, the banks that have so far stayed resolutely silent need to start taking responsibility.

Incidentally, the cheque that HSBC bounced on my landlord (a cheque for tens of thousands of Dirhams returned without even making a call to me, of course) came back marked as 'Irregular Signature'.

9 comments:

Anonymous
said...

I caught your link on Twitter, and thought this information to be an interesting look at life in your part of the world. I have a sister, a teacher fron New Zealand working Katar. Not too far from you. A good new year to you.

are you the same alex on 1038 who brought up this issue? if so, thanks for bringing it up.

I just checked on the issuing banks of cheques for Apr/May 2010 given by clients. they haven't been given a directive to change their cheque issuing system or to replace old cheque books with new. They'll be honouring the cheques as they've been doing all this while, i've been told. Spoke to the call center as well as the branch in deira. None have information from top.

So i don't think i can even ask the issuing company to change cheques with a new cheque since the bank itself hasn't gotten any.

Change management is something that is foreign in this part of the world, or atleast with some companies and bureaucratic systems.

This is serious business. We checked our bank (Emirates NBD) and their customer service people simply told us to visit a branch for more information.

In other words, they have not been informed about this at all! I think HSBC is a bit too aggressive in their implementation.

I also now need to go pay my landlord in cash in case Lloyds TSB decides to not honor my personal check. And no, I did not receive any letters from Lloyds TSB, HSBC or Emirates NBD. I bank with these banks personally and on a corporate level.

How cute that they are still sticking with the whole cheque system! Seems like a complete waste of time, effort and money to me.

For example, in Germany you transfer directly to an account number - they don't even look at the name anymore. Cheques are obselete there - the staff would look at you funnily if you asked for a cheque book. Too much room for interpretation and errors in a name.

And what about standing orders?? Imagine having to fill out 12 cheques in advance for the next year's rent instead of setting up a regular transfer in one simple action. It's nuts. Totally nuts.

Alex, for once I have to praise Lloyds as they have annonced this both on the Internet Banking site as well as sending me letters and explaining that I should get new cheques starting with 1st of Jan. Lucky my last rent cheque has gone out in December and I have to give new ones only in a few months.

Any news on whether or not you're likely to be prosecuted for an 'old' cheque? If cheques are bouncing left right and centre for being old and the UAE marches on as it always has and treating a bounced cheque as a criminal matter, it's going to completely disrupt the real estate market even further.

After all, who is going to want to write 12 PDCs for an apartment now if they think they might get jailed for it, and what landlord is going to accept multiple PDCs in the first place now?

If something isn't done and the banks keep being funny about accommodation loans, this could see rent values plummet as essentially landlords find there is no 'safe' method of collecting rent and tenants find there's no way of paying the rent.

As of today HSBC seems to be taking part-measures to solve the problem. The Customer service rep informed me that any cheques in the old format will be cleared till the end of July, but (and this is a BIG one), they will only honour PDCs and not new cheques written out. Seems like HSBC has some sort of carbon-dating analysis which tells them when I have actually written out the cheque. If they do, why are they holding out on the other banks who can use the same technology to confound their customers?

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Fake Plastic Souks

I write books, I consult on publishing, media and digital communications, I cook. I spend quite a lot of my time laughing and do try not to be a stick-waving, spittle-flecked angry old man. I fail in this occasionally.